There is a revealing cruelty in the latest cotton crisis. Pakistan’s most important export industry is being weakened at home itself by a tax structure that has made local cotton less attractive to buy and more expensive to move through the formal value chain. The closure of ginning factories in Tando Adam and other cotton centres within weeks of the season’s opening should therefore not be dismissed as another sectoral complaint.
The immediate trigger is the federal government’s decision to retain the 18pc sales tax burden on cotton ginning and its by-products. Cotton prices have crashed, phutti and oil cake rates have fallen sharply, ginners are reporting liquidity losses, and farmers entering harvest season are suddenly discovering that buyers have fewer reasons to remain in the market.
The larger contradiction is even harder to defend. At one end of the rural economy, governments are squeezing the organised parts of the cotton chain. At the other, they remain unable, or unwilling, to collect meaningful tax from agricultural income from the influential actors. The first year of the harmonised agriculture income tax regime has exposed the familiar gap between law and power. Provinces passed legislation under external pressure, but the collections show how little has changed in practice. Large landholders remain politically protected, while salaried taxpayers, manufacturers and formal intermediaries continue to carry the weight of fiscal adjustment. Small farmers already face rising input costs, climate shocks, pest attacks, poor seed quality, uncertain prices, high diesel and electricity expenses, and limited access to affordable credit. They should not be confused with wealthy absentee landowners or large commercial growers whose income has long escaped serious scrutiny. A fair system would distinguish between subsistence vulnerability and taxable agricultural wealth. Pakistan has instead managed to produce the worst of both worlds: weak enforcement against the powerful and harsh indirect taxation on the productive chain.
Cotton deserves particular urgency because it feeds ginning, spinning, weaving, garments, edible oil, livestock feed and rural employment. It also supplies the textile sector, which remains the country’s main export earner. Yet cotton acreage and profitability have been declining for years as farmers shift towards crops with more predictable returns. Climate stress has made matters worse, especially in Punjab, where heat, erratic rainfall, pests and seed failures have damaged yields. In such circumstances, the state should be using policy to restore trust. Instead, it has added another reason for farmers and ginners to step back. A country cannot claim to pursue export-led growth while making its principal raw material uneconomic. Nor can it keep calling agriculture the backbone of the economy while treating it alternately as a political sanctuary and a revenue trap. *